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Student Loan Debt Threatens Retirement Security of Many Older Americans

The Government Accountability Office (GAO)--the audit, evaluation, and investigative arm of Congress--recently released a report showing that a growing number of older Americans are saddled by student loan debt. Indeed, the rate of increase in older borrowers and the amount of their debt has rapidly surpassed that of younger student-loan borrowers. Further, borrowers age 50 and older have much higher rates of default on federal student loans than younger borrowers, loans that generally cannot be discharged in bankruptcy.

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Worse, under the Treasury Offset Program, Social Security benefits may be reduced by up to 15% to repay federal student loan debt-a process known as offset. For fiscal year 2015, approximately 114,000 borrowers age 50 and older had Social Security benefits that were offset to repay defaulted federal student loans. Forty-three percent of these individuals had held their student loans for 20 years or more and 80% had held their loans for 10 years or more. Most took out their loans at traditional mid-career working ages and for their own education (as opposed to for their children's educations).

The offsets raise concerns for a number of reasons. First and foremost, many Americans depend on Social Security benefits for a majority of their income. The Social Security Administration (SSA) reports that Social Security benefits account for 90% or more of income for approximately one-third of all Social Security beneficiaries age 65 or older. A 15% offset to Social Security benefits can therefore wreck havoc on a beneficiary's retirement security. Additionally, the offsets don't do much to reduce the student loan debt. Of the approximately $1.1 billion collected through Social Security offsets from 2001 through 2015, 71% applied to borrowing fees, offset fees, and interest, and only 28% applied to principal.

Some disabled borrowers may, however, be eligible for a Total and Permanent Disability (TPD) discharge of their federal student loans. This requires a determination by the SSA that the individual is totally and permanently disabled. Although TPD discharges represent the largest share of loan discharges for older Americans in offset, many borrowers eligible for a TPD discharge have not applied for it due to lack of education. Therefore, beginning in December 2015, the U.S. Department of Education started sending letters to individuals whom the SSA had determined were totally and permanently disabled, explaining that they were eligible for a TPD discharge and how to apply.

In April of 2016, Education went a step further and decided to suspend offsets of Social Security benefits for borrowers identified as eligible for a TPD discharge, regardless of whether they had returned their TPD discharge application. However, interest on their loans continues to accrue. Moreover, once an eligible individual reaches full Social Security retirement age (age 66 for persons born between 1943 and 1954), the offset resumes unless the borrower actually applies, and is approved for, a TPD discharge. Unfortunately, many borrowers are unaware of these caveats to the offset suspension or that interest continues to accrue on their loans while the offset is suspended. Therefore, more education is needed for older Americans whose Social Security benefits are offset by a portion of their federal student loan debt.

Older Americans who are not permanently disabled may also obtain full or partial relief from a Social Security offset if they can demonstrate that it would present a financial hardship. In making this determination, Education compares their documented income and qualified expenses, rather than setting a specific income or debt threshold. If the application is approved, the borrower will either be exempted from the offset or will have a reduced offset. Most borrowers request a full exemption rather than a reduction in the offset. In either case, their loans are still considered to be in default and interest continues to accrue on the loans.

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